While there still are residential home buyers waiting to buy until mortgage rates lower and with home appreciation prices slowing, there are nevertheless opportunities for homebuyers in the new construction market.
Why? High construction costs, rising interest rates, inflation, and buyer concerns concerning job security all pose challenges to builders, According to the National Association of Home Builders (the NAHB), sales of newly built single family homes increased by 2.3% in December, 2022 compared with November sales, due to temporary declining mortgage rates and builder incentives. Yet, the 2.3% increase was overshadowed by the fact that sales were down 16.4% compared to December 2021.
In order to increase sales, the NAHB reported that 57% of builders offered an incentive in February, 2023 from closing cost credits, free upgrades and options, and mortgage interest rate buy-downs while reducing home prices by 31%. That’s right: 31%! As a result, homebuyers are becoming even more savvy, negotiating with builders for home deals.
For homebuyers who pay cash, many builders are offering price reductions or upgraded options and design selections while others will not do so in order to protect the property values of homeowners who already purchased. For homebuyers who are obtaining a mortgage, builders are offering interest rate reductions and even rate locks for certain periods of time.
Perhaps the “best” deals are those homes that are being built for spec, early-delivery homes, or move-in ready homes–typically houses under construction that have not been sold yet. The reason for this is simple: as the home is to close to completion, builders do not want to have carrying costs which include utilities, lawn maintenance, homeowner association dues, taxes, insurance, and interest on the builder’s construction mortgage. Further, builders recognize that if the completed home sits too long on the market, then the value of the home decreases.
What to do as a homebuyer?
While many housing markets are still overvalued, one can approach the builder and negotiate a price or request concessions but be willing to walk away if the builder does not provide what one seeks. Additionally, see if the builder will buy down the mortgage rate in order to make the buyer’s payments more affordable. Bottom line is that homebuyers have some negotiating power in the new construction housing market today.
What does this all mean?
As the residential real estate market continues to remain in flux due to mortgage interest rates, those homebuyers who either pay cash or who negotiate with a builder for a spec, early delivery or move-in ready home are finding deals. The key is to research the neighborhood, builder, and sales of spec homes.
Roy Oppenheim
From The Trenches